$$\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$$

Question 1

Which of the following best describes the accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Owner's Equity}$$

Question 2

Which qualitative characteristic of accounting information ensures that information is free from error and bias?

Accepted Answer

Faithful Representation

Question 3

A company purchased equipment for $$\10$$,000$ cash. Which accounts are affected and how?

Accepted Answer

Increase Equipment $$\10$$,000$$, Decrease Cash $$\$$10,000$$

Question 4

Which financial statement shows a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 5

Which of the following is NOT a component of the fraud triangle?

Accepted Answer

Profitability

Question 6

If a company uses accrual accounting, when is revenue recognized?

Accepted Answer

When the performance obligation is satisfied

Question 7

Which journal entry records the payment of $$\500$ for a utility bill previously accrued?

Accepted Answer

Debit Utilities Payable $$\500$, Credit Cash $$\$$500$$

Question 8

Which ratio is calculated as $$\frac{	ext{Current Assets}}{	ext{Current Liabilities}}$$?

Accepted Answer

Current Ratio

Question 9

A company has current assets of $$\15$$,000$$ and current liabilities of $$\$$10,000. $$What is its current ratio?

Accepted Answer

$$1.5$$

Question 10

Which of the following is an example of an adjusting entry for prepaid insurance?

Accepted Answer

Debit Insurance Expense, Credit Prepaid Insurance

Question 11

Which of the following best describes the purpose of internal controls?

Accepted Answer

To safeguard assets and ensure the reliability of accounting records

Question 12

Which document is NOT typically used in bank reconciliation?

Accepted Answer

Sales Invoice

Question 13

If a company records depreciation expense of $$\2$$,000$ for the year, what is the effect on the accounting equation?

Accepted Answer

Decrease assets $$\2$$,000$$, decrease owner's equity $$\$$2,000$$

Question 14

Which of the following transactions would require a credit to a revenue account?

Accepted Answer

A sale of goods on account

Question 15

Which of the following is considered a temporary account?

Accepted Answer

Service Revenue

Question 16

A company’s trial balance shows a debit balance in the Supplies account. What does this indicate?

Accepted Answer

The company has supplies on hand

Question 17

Which of the following is NOT a step in the flow of accounting data?

Accepted Answer

Issuing stock certificates

Question 18

Which of the following best describes the matching principle?

Accepted Answer

Expenses are matched with revenues in the period in which they are incurred

Question 19

A company’s bank reconciliation reveals an outstanding check for $$\1$$,200$. How should this be reflected?

Accepted Answer

Deduct $$\1$$,200$ from the bank statement balance

Question 20

Which of the following is a real-world example of an ethical dilemma in accounting?

Accepted Answer

A manager asks an accountant to delay recording expenses to make profits appear higher

Financial Accounting Study Guide: Key Concepts and Chapter Summaries

Study Guide - Practice Questions